Apple's New iPad May Not Be as Profitable As You Think

The 128-GB model offers a nice cushion, but other models offer more.

Tim Beyers
Tim Beyers
Feb 6, 2013 at 6:56PM
Technology and Telecom

Much has been made about Apple's (NASDAQ:AAPL) new 128-gigabyte Retina iPad. Priced expensively at $799 for the Wi-Fi only edition -- most PCs can be had for a similar price -- the new tablet promises a needed boost to the Mac maker's margins.

Or at least that's the prevailing wisdom. The math says otherwise.

According to researcher IHS, which revealed its findings to CNET, Apple pays about $0.55 per GB of iPad storage. Thus, the jump from 16 to 32 GB costs the company just $8.80 while producing $100 in additional revenue -- an astounding 91.2% margin. By contrast, the jump from 64 to 128 gigs costs $35.20 while offering the same $100 revenue boost, but at a much lower margin.


Source:  The Motley Fool.

Ironic, right? The high-end iPad could actually crimp margins if it cannibalizes sales of entry-level iPads.

Fortunately, that's unlikely to happen. Initial demand for Apple's 128-GB iPad appears confined to business users who pay for expensive carrier data plans -- specifically, Sprint Nextel and Verizon customers. Those who order now won't see their iPads ship for three to five days vs. one to three days for the Wi-Fi version.

Perhaps these shoppers see the new iPad as a laptop replacement? A recent Forrester Research survey found surprising demand for Microsoft's (NASDAQ:MSFT) new Windows 8 tablet, which, with its snap-on keyboard, pitches itself as a laptop alternative.

Whatever the draw, the newest iPad seems destined to serve a niche buyer base. Apple isn't used to that. Or at least not this Apple, whose premium products have gone mainstream in the same way that Starbucks has made the $3 cup of coffee an everyday must.